Boeing Lands Major 787 Order From American Airlines

After markets closed Friday, Boeing Co. (NYSE: BA) announced an order from American Airlines Group Inc. (NASDAQ: AAL) for 47 787 Dreamliners, along with options on another 28. At list prices the order is valued at more than $12 billion.

American had already ordered 42 of the dual-aisle passenger gets, and Boeing had delivered 35 as of the end of February. The new order makes the airline the largest 787 customer in the Western hemisphere and includes 22 of the 787-8 model and 25 of the larger 787-9s. All will be powered by General Electric Co. (NYSE: GE) GEnx-1B engines.

In its announcement of the order, American said it agreed with Boeing’s archrival Airbus to terminate the airline’s order for 22 A350s, an order American inherited when it acquired U.S. Airways. American is a long-time Boeing customer and wants to simplify its wide-body fleet.

The order was not without some bad news for Boeing, however. American is deferring delivery of 40 single-aisle 737 MAX aircraft that were scheduled to arrive between 2020 and 2022. The airline did not specify when or if the 737s have been rescheduled. nor did either company indicate when delivery of the new 787s would begin.

As part of its original order for 787s, American took an option on 58 more planes. Neither Boeing nor American indicated whether Friday’s order was an exercise of that option or an entirely new order. If it is an entirely new order plus options, that indicates that American plans to acquire 175 787s to replace 94 Airbus and Boeing wide-bodies. That’s an awful lot of growth.

More likely is that the 47 planes were included in the options taken with the first order. That leaves 11 original options plus 28 new options plus 47 new orders plus seven new planes from the original order still to be delivered. That adds up to 93 planes, a more reasonable calculation

Through the end of February, Boeing’s backlog of orders for the 787 stood at 639. The company is increasing its production rate for the plane from 12 per month to 14 per month beginning next year. At that production rate, Boeing’s backlog for the 787 runs out in early 2022.

Jon Ostrower, a former Wall Street Journal and CNN reporter on the aerospace industry, noted in a tweet Friday that Boeing has 75 commitments for 787s that the company hopes to convert to firm orders this year. Add in the recent order for 10 from Hawaiian Airlines and Friday’s order from American and Boeing could have a very good year in building its 787 backlog. How does Boeing do it? Here’s Ostrower’s take:

The central thesis of Boeing 787 sales effort is: 1. Annihilate the A330neo before NMA launches. 2. Make sure the backlog doesn’t disappear at 14/mo production rate. Pricing is a very effective weapon for Boeing right now.

Airbus lost the Hawaiian order for six A330-800s and now has lost again at American. As Ostrower points out, it will all come down to pricing.

Boeing stock closed Friday at $326.12, down 3.1% on the day, in a 52-week range of $175.47 to $371.60. The 12-month consensus price target on the stock is $386.83. The stock has returned to its position as the best-performing Dow stock for the year to date.